Professor Ron Adner
Club Med: From Value Innovator to Follower
PREPARED BY: N IR MAROM A NNIE DUDKIEWICZ JEHAN COYAJEE IFTAH YAIR MATTEO CARLI A DAM C LOSENBERG
FEBRUARY 13, 2003
HTES: Club Med
“A parallel universe where every day is beautiful, where there are no locked doors, no more barriers between people, where the body is cause for celebration and the mind runs free.” Philippe Bourguignon, CEO Club Med (1997–2002)
HTES: Club Med
EXECUTIVE SUMMARY In 1936, the French government introduced the paid vacation, but World War II broke out before this policy could set the tourism industry alight. A few years after the war, Gerard Blitz, a Belgian, championship-level athlete and resistance fighter, visited Club Olympique’s tent village in Corsica and was inspired to establish Club Med as a non-profit organisation “to develop appreciation for the outdoor life and the practice of physical education and sports.” Little did he know that Club Med would assume to mantle as “Value Innovator” of the all-inclusive vacation industry.
Club Med’s innovativeness extended beyond its product to its business model. The innovation of its product was to provide young adults, like Blitz, with somewhere exotic to vacation. At tha t time, vacations were predominantly local and usually involved staying with relatives or, at best, at family-run inns. The innovation of its business model was in the combination of: (1) the “all-inclusive” concept, which required that Club Med control the entire vacation value chain (sales and marketing, transportation, destination, food and entertainment); (2) a members club which brought some subscription revenues but, more importantly, encouraged repeat business 1; and (3) “cash free” resorts which boosted guests’ spending on alcohol and other extras. Club Med started small but scaled fast. In total, Club Med opened 19 resorts in the fifties, 32 in the sixties, 59 in the seventies, and 29 in the eighties 2. This rapid growth was made possible by loyal guests who were willing to prepay for their vacations, lack of any direct competition, and Club Med’s ability to “cross the chasm” into the mass tourism market. The latter required management to replace its original tent villages with more comfortable hotels and bungalows, add family -friendly facilities, extend sales and marketing efforts outside France, and invest heavily in establishing Club Med as the trusted brand in family vacations.
Club Med’s success from the 1950s through the 1980s was based on a deep understanding of its guests and a willingness to respond to their changing needs. So
According to Club Med, 20% of members visit every year and 83% to return every three years. These numbers include permanent and temporary villages and do not account for any closures.
HTES: Club Med
when its original guests matured from singles and young adults into parents, it made sense for Club Med to adapt the product into something more suitable for families. However, by the late 1980s, competitors finally realised that Club Med’s undifferentiated product for all market segments left the door open for them to serve the very segments Club Med had left behind – singles and adults.
Today, Club Med faces intense competition from other all-inclusive resorts like Sandals and SuperClub in the U.S. and Caribbean, who learned from Club Med’s successes (all-inclusive; organised entertainment; and exotic locations) but improved on its mistakes (different brands and products targeted specifically for singles, adults and families, or for low- or high-end resorts; deeper rather than broader geographic coverage; and free alcohol!).
Club Med’s response to the competition has fallen short of a complete segmentation and multi-brand strategy. Instead, it has renovated its older resorts and re-classified all its resorts in terms of the different level of facilities it...